Memory growth supports Samsung Electronics' 2Q26 results; Citi maintains Buy and favors the AI memory cycle

Overview

This report provides Citi's commentary on Samsung Electronics' 2Q26 earnings preview. The company announced preliminary 2Q26 operating profit of W89.4tr, up 56% quarter over quarter and 1,812% year over year, driven mainly by growth in memory business earnings. Although employee bonus provisions weighed on quarterly profit, Citi believes Samsung Electronics is well positioned for customization trends in memory in the second half and over the long term, supported by its leading DRAM/NAND capacity, AI-related memory demand, and end-to-end AI chip solutions.

Core views

The core views are: first, improved memory earnings should more than offset the impact of bonus provisions, with the semiconductor division expected to contribute the vast majority of profit; second, AI remains an important bottleneck for memory demand, and server DRAM prices are likely to continue rising in 2H26; third, Samsung is likely to recover its HBM4 technology leadership and enhance the competitiveness of its AI turnkey solutions through synergies among System LSI, Foundry, Memory, and backend packaging; fourth, although mobile shipments are growing, higher component prices are weighing on profits.

Analysis framework

The report evaluates Samsung Electronics' earnings resilience and upside potential by combining preliminary 2Q26 operating profit guidance, business-level profit estimates, smartphone shipment and ASP assumptions, AI memory supply-and-demand assessments, HBM and Foundry technology progress, and an SOTP valuation framework.

Methodology notes

• Valuation methodsSOTP

  Sum-of-the-parts valuation

  Citi uses a 2026E EBITDA-based SOTP methodology to calculate Samsung Electronics' 12-month target price, applying EV/EBITDA multiples to the five major business segments with reference to global comparables.

• Relative valuationEV/EBITDA

  Enterprise value-to-EBITDA multiple

  The report estimates the operating value of each business using fair EV/EBITDA multiples of 7.6x for Memory, 4.1x for Foundry, 0.5x for Display Panel, 4.8x for Mobile, and 2.0x for Consumer Electronics.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Samsung Electronics (005930.KS)

  Covered company

  Strengths

  The company has the largest DRAM/NAND capacity, significantly improved memory earnings, and potential for AI turnkey synergies spanning System LSI, Foundry, Memory, and backend packaging.

  Weaknesses

  The mobile business is weighed down by higher component prices, bonus provisions are disrupting short-term profit, and the certification progress of key HBM customers remains to be verified.

  Comparison

  Valuation uses global peer multiples, with a 7.6x multiple for the Memory business, higher than those for Display Panel and Consumer Electronics, reflecting the Memory business's stronger earnings and growth characteristics.

  Risks

  Delays in HBM shipment certification, weaker-than-expected PC and NAND demand, aggressive investment by competitors depressing prices, intensifying smartphone competition, and a sharp appreciation of the Korean won.

• DRAM/NAND memory cycle

  Core earnings driver

  Strengths

  AI CPU demand is driving server DRAM prices higher, while memory customization could generate long-term structural demand growth.

  Weaknesses

  The supply-and-demand outlook depends on demand continuing through 2H26 and 2027, while end-market PC and NAND demand remains uncertain.

  Comparison

  Samsung's scale of capacity gives it relatively strong earnings leverage during an upcycle in memory.

  Risks

  New industry supply, competitive capital expenditure, and weaker-than-expected demand could reduce price and earnings leverage.

• HBM4 and Foundry

  Technology and synergy growth driver

  Strengths

  The report expects Samsung to continue recovering its HBM4 leadership, while Foundry is likely to rebound with support from AI chip projects and partnerships with U.S. technology companies.

  Weaknesses

  The realization of technology leadership and customer certification progress still requires continued execution.

  Comparison

  The end-to-end AI chip strategy covers design, manufacturing, memory supply, and backend packaging, distinguishing Samsung from suppliers focused on a single link in the value chain.

  Risks

  Delays in key customer certification, slower-than-expected AI chip project progress, or intensifying Foundry competition.

Key data

• Preliminary 2Q26 operating profitW89.4trUp 56% quarter over quarter and 1,812% year over year, driven by memory earnings growth.
• 2Q26 bonus provision impactW17.2trCiti estimates that this amount was reflected in quarterly results.
• 2Q26E semiconductor operating profitW88.4trExpected to improve significantly from W53.7tr in 1Q26.
• 2Q26E segment operating profitSemi W88.4tr; Display W0.5tr; Mobile W0.3tr; CE W0.06tr; Others W0.15trDisplay and mobile businesses are expected to make relatively small profit contributions.
• 2Q26E smartphone shipments62mnUp 5% quarter over quarter from 59mn in 1Q26, although mobile business profit is being weighed down by higher component prices.
• Target price and current priceW530,000 / W318,000The current price is based on July 6, 2026; the target price is the 12-month target.
• Expected return66.7% share price return; 67.2% total returnIncludes an expected dividend yield of 0.5%.
• Catalyst WatchUpside, expires 10-AUG-26Citi's short-term catalyst outlook is to the upside.
• Market capitalizationW1,859,116,597M / US$1,215,665MDisclosed in the table on the report's front page.

Impact & implications

The report's investment implications for Samsung Electronics are moderately positive: AI server and customized memory demand could extend the memory shortage cycle and drive prices higher, while Samsung's positioning in DRAM/NAND capacity, HBM, Foundry, and AI chip design synergies could amplify earnings leverage. Further confirmation during the 2Q26 earnings call that the bonus impact is limited, memory supply and demand will improve in 2H26 and 2027, and memory LTA progress is advancing could strengthen upward momentum in the share price.

Risks

• Approval for HBM shipments to key customers takes longer than expected.
• PC sales are weaker than Citi's forecast, and NAND demand falls short of expectations.
• Aggressive investment by memory semiconductor or Foundry competitors negatively affects prices.
• Intensifying competition in the smartphone market compresses margins in Samsung's mobile business.
• A sharp appreciation of the Korean won could adversely affect Samsung Electronics' earnings.

What to watch

• The actual impact of bonus provisions on earnings during the 2Q26 earnings call.
• The global memory supply-and-demand outlook for 2H26 and 2027, especially server DRAM price trends.
• Further details or progress on memory LTAs.
• The recovery of HBM4 leadership and the progress of key customer certification.
• Order and profit recovery for Foundry in AI chip projects and partnerships with U.S. technology companies.